- The Trump administration will impose a 25% tariff as of July 6, 2018 up to $50 billion in Chinese goods in an effort to protect U.S. intellectual property and technology.
- China immediately announced it was imposing tariffs same scale and strength against U.S. imports taking aim at RED STATE agriculture products.
- Trump’s objective is to reduce the size of the U.S.--China trade deficit by over 40% from an estimated $370 billion to $200 billion by 2020.
- The Trump administration alleged IP appropriations and corporate espionage have and continue to cost the U.S. economy of between $225 billion to $600 billion a year.
There is in fact a Chinese/U.S. Trade War ratcheting up. It’s a very dangerous conflict for three reasons…
Reason #1: The impact of any full scale trade war with between the U.S. and China could end up being a short term economic blip for China.
While it’s true the United States is China's biggest trading partner, China has plenty of other markets to sell its products, including rapidly growing regions of Southeast Asia and India. These trading partners were all but handed to China when the United States withdrew by order of President Trump from the Trans-Pacific Partnership (TPP).
In addition, China’s economic growth has been channeled in the last ten years to making significant inroads in trade into Latin America and Africa via its funding of major government-sponsored and private infrastructure projects.
China currently exports more than $2 trillion of goods a year, but only $400 billion to $500 billion goes to the United States. In addition on a value-added basis, only two-thirds of that is actually "manufactured in China".
Meanwhile, Xi wants the yuan to replace the U.S. dollar as the world's global reserve currency. By decreasing its percentage of trade with the United States and increasing its trade with the rest of the world it will improve its ability to position the yuan as the world's global reserve currency.
China is rapidly moving to expand trade with other trade partners so fast, many we are abandoning and attacking at a time that our national debt will grow by $1 trillion a year.
Trump may find that China doesn’t bend much less break and will not come back to the negotiating table with any substantial concessions.
Reason #2: While President Trump is railing about IP theft China is reaching the critical crossover point in China where the return on IP theft is falling toward zero and the return on IP protection may soon rise above zero.
China is already emerging as a global leader in AI, renewable energy and electric vehicles, among other sectors. China’s technological advancements have been tied to the recent trade talks and have increasingly incentivized China to protect its own Intellectual Property (IP) rather than trying to steal IP from foreign trade partners.
Reason #3: China hold’s $1.19 trillion as of March 2018, which amounts to more than 5% of our national debt of $21 trillion or of the $6.29 trillion in Treasury bills, notes, and bonds held by foreign countries.
Further as I pointed out, our national debt and need to sell U.S. Treasuries will grow by $1 trillion a year. Should China start selling its U.S. debt instead of buying it, it could drive both U.S. interest rates higher, which would also drive the value of the U.S. dollar higher. In effect, undermining U.S. exports, its economy and push the United States into a recession.
On Saturday I issued our first Wall Street Rebel Red Alert. Its amateur hour in the White House and Trump’s trade war with China, Mexico, Canada and the EU could set off a 10% to 15% correction in the U.S. Stock Market any day. Throw on top of this danger the reality Trump’s personal lawyer could flip on him any day isn’t a confidence builder for investors. Especially when you consider the 3.8+ million documents, tape recordings and text messages now in possession of U.S. prosecutors from the SDNY.
Very quickly there are multiple "clear and present dangers" that take could off at any minute.